The Influence of Business Environment on the Effectiveness of Management Accounting Practices: Evidence from Libyan Companies

Although management accounting research based on contingency theory has a relatively long tradition, many recent studies have called for additional work in order to increase the understanding of possible contingency factors that explain the adoption of management accounting practices (MAPs). This, in addition to a general lack of knowledge of MAPs, especially in developing countries, is the motivation for this research study. The main focus of this research is to investigate the state of MAPs within Libyan companies and identify and explain the relationships between these MAPs and contingent factors. To capture these relationships in sufficient depth, a theoretical contingency model which includes 14 variables was developed based on an extensive review of the relevant literature and the examination of various possible forms and levels of fit. This model adopts both congruency and contingency approaches of fit and considers mediated relationships between contingent variables, MAPs and organisational performance. Primary data were collected by means of a survey questionnaire from 123 companies and face-to-face interviews with senior managers in 10 of these companies.

The results of this study show that the adoption rates of most MAPs in Libyan companies are lower than those found in other countries as reported in the literature (e.g. USA, UK, Australia and India). MAPs in these Libyan companies also seem to serve a narrow range of purposes. In addition, budgeting practices are more popular and take precedence in the respondent companies. The testing of hypothesised direct and mediated relationships using regression analysis indicates that there is no single variable that has a significant effect on all three types of MAP (i.e. cost, budgets and measurement performance). Nine of the 14 contingent variables are statistically links to the type of MAP; seven of these (i.e. build strategy, differentiation strategy, prospector strategy, formalisation, product diversity, size and ownership type) to budgeting and performance measurement practices, and the other two (i.e. formalisation and ownership type) to cost and budgeting practices. Of significance also is the result that MAPs play a mediating role between many contingent variables and organisational performance. While most interviewees acknowledged the importance of contingent variables in relation to MAPs, they mentioned several reasons for not having MAPs that fully encompass the business environment. The reasons include lack of knowledge about MAPs, shortage of financial resources, the company being newly established, lack of top management support, absence of the culture of using MAPs and fear of change.

Finally, this study represents a most comprehensive survey and explanation of MAPs in a developing country, namely Libya, which is an emerging economy. It contributes to enriching our understanding of how MAPs can be adopted more effectively and efficiently from a contingency perspective, through identifying the impact of this relationship on organisation effectiveness in developing countries, and to bridging the gap in MAPs literature. However, this study not only contributes to the inspiration and helps to identify whether there are differences in the relationship between contingent factors and MAPs between industrialised and developing countries, but also gives a more in-depth understanding of these relationships for discerning the individual impacts of the various variables of contingent factors on various MAPs (i.e. cost, budgets and measurement performance).